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AWK Up on Strategic Acquisition

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American Water Works Company, Inc.’s (AWK - Free Report) share price closed at 0.7% higher to $43.18 per share from the previous closing price. We believe the gain reflected the positive reaction of the market to the company’s announcement of the purchase of Dale Service Corporation.

American Water Works’ subsidiary Virginia American Water acquired Dale Service Corporation for $27.7 million. Initially, the company reported its interest for this acquisition on May 2, 2013. The current acquisition of wastewater operations is the largest acquisition by American Water Works over last 10 years.

Northern Virginia-based Dale Service Corporation is a wastewater utility company. The company offers wastewater collection and treatment services to roughly 20,000 customers in the Dale City of Prince William County.

Virginia American Water and Dale Service Corporation have a longstanding relationship. Since 1966, Virginia American Water has been offering water services to majority of the wastewater customers of Dale Service Corporation.

Post acquisition, Virginia American Water will directly provide wastewater services to the Dale Service Corporation’s customers. The company’s newly acquired unit will operate two wastewater treatment set ups, having a combined capacity of 9.2 million gallons per day.

This acquisition will enable Virginia American Water to enhance its customer base besides experiencing operational synergy. In addition, the inclusion of Dale Service Corporation will also help the company to reap benefits from its existing facilities in the region and lower competition.

We note that American Water Works is continuously acquiring new assets along with improving existing set ups. Year to date, the company has completed acquisitions of eight water and four wastewater systems.

In full-year 2013, the company plans to spend $950 million for the construction of several infrastructures, which will subsequently help to improve reliable water and wastewater services.

American Water Works’ continuous effort toward strategic acquisitions and upgrading the existing infrastructure will enable the company to provide uninterrupted water to its customers while strengthening system competence. These factors will subsequently improve reliability and public safety, while maintaining government regulations.

American Water Works currently has a Zacks Rank # 2 (Buy). Other water utilities that are worth considering include Middlesex Water Co. (MSEX - Free Report) with a Zacks Rank #1 (Strong Buy), and Connecticut Water Service, Inc. (CTWS - Free Report) and California Water Service Group (CWT - Free Report) each with a comparable Zacks Rank #2 (Buy).

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